WASHINGTON (5/20/14)--The National Federation of Community Development Credit Unions and the Credit Union National Association together have created a white paper to assess the impact of Community Development Financial Institution (CDFI) certification on the performance of credit unions.
The federation has been certified by the U.S. Treasury Department's CDFI Fund since 1996 as the only national intermediary exclusively devoted to CDFI credit unions. Since then, it has served as the leading advocate and provider of technical assistance and consulting services to help credit unions obtain, retain and capitalize on CDFI certification.
The purpose of the Treasury's CDFI program is to use federal resources to invest in CDFIs, including credit unions and banks, and to build their capacity to serve low-income people and communities that lack access to affordable financial products and services.
The paper, prepared by the federation and CUNA's Community Credit Union Committee, compares CDFI certified credit unions with peer groups of low-income designated and mainstream credit unions and identifies important similarities and differences, using data from the CDFI Fund and NCUA 5300 Call Reports for fiscal years 2009 and 2013. The data was used to analyze the institutional performance and community development profile of 173 credit unions that were CDFI certified as of Dec. 31, 2013.
Several of the paper's key findings include:
- CDFI credit unions thrive in tough markets. By their nature, CDFI credit unions focus most loans and services in most economically disadvantaged communities, yet the financial growth and performance of CDFI credit unions meets or exceeds that of their mainstream peers. CDFI credit unions offer a greater number and variety of community development products and services than their peers, including credit-builder loans, anti-predatory loans, check-cashing services, bilingual services, financial counseling and more.
- CDFI credit unions maximize leverage of external resources. From 2009 through 2013, 61 credit unions received $102.7 million in CDFI Financial Assistance grants. During that time, these credit unions increased total assets by $2.4 billion -- a leverage rate of $23.70 for each equity grant dollar added by the CDFI Fund -- and increased total loans by more than $1.5 billion. In addition, 99% of the dollars awarded to credit unions as permanent capital grants from the CDFI Fund are still at work in credit unions.
- CDFI credit unions are leaders in technology and member services. CDFI credit unions today significantly outpace their peers in the use of high technology for member services. The high-transactional needs of low-income communities pushed CDFI credit unions to lead the way with innovative services such as online and mobile banking, bill payment services, online loan applications and 24/7 access to account information.
- CDFI credit unions represent a viable business model for community development finance. CDFIs blend financial products with capacity-building services to help members better manage their personal finances; as a result, CDFI credit unions put a higher percentage of their assets to work as loans.
- CDFI certification is within reach for thousands of credit unions. Nearly half of all credit unions are concentrated in economically distressed census tracts that qualify as CDFI Investment Areas, but that alone does not make them CDFIs. Credit unions that make a strategic decision and take action to address the needs of these underserved communities can become eligible for CDFI certification.
The paper concludes by saying that while a CDFI certification alone will not make a credit union successful, it can be used a building block and to achieve growth and impact underserved markets.
The paper also notes the regulatory benefits enjoyed by CDFI credit unions, such as their exemption from the 12.25% of assets cap on member business loans and from the Consumer Financial Protection Bureau's Ability-to-Repay and Qualified Mortgage requirements for mortgage lenders that took effect in January 2014. It notes that such exemption reflect regulators' recognitions that CDFI credit unions are mission-driven institutions working to provide products and services that meet low-income communities' needs.
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